EU Study Demonstrates Urgent Need for VAT Rethink
T
The European
Commission has
published a new
report on the VAT
Gap across 26
member states in
2011, revealing
that 18 percent
of member states’
theoretical valueadded tax-take goes
uncollected owing to
fraud and evasion,
legal tax avoidance,
bankruptcies,
financial
insolvencies,
miscalculations
and the poor
performance of tax
administrations.
he study, funded by the
Commission, has been released to
back up its efforts to win support
for a substantial reform of the VAT
system in Europe, as well as its wider
campaign to clamp down on tax evasion.
The VAT Gap is defined as the difference
between the amount of VAT that
could theoretically be collected, and
the actual VAT collected by member
states. Prior to this study, the most
recent estimates for the VAT Gap
dated back to 2006. The study newly
includes statistics from Bulgaria and
Romania, but not Croatia, which wasn’t
a member state when the statistics
were collated. Figures from Cyprus are
not included in the study either, due
to ongoing data-collection reforms.
The research shows that the VAT Gap
across 26 member states in 2011
amounted to EUR193bn (US$261bn), or
1.5 percent of these states’ combined
gross domestic product (GDP).
Original story found here:
http://www.tax-news.com/
news/EU_Study_Demonstrates_
Urgent_Need_For_VAT_
Rethink____62107.html
8
Accolade
OCTOBER 2013
Italy (€36bn), France (€32bn), Germany
(€26.9bn) and the UK (€19bn)
contributed over half of the total VAT Gap
in quantitative terms, owing to the size
of their economies. Relative to the size
of their economies, Romania (€10bn),
Greece (€9.7bn), Lithuania (€4.4bn)
and Latvia (€0.9bn) were the countries
with the largest VAT Gap in 2011.
The study shows a marked upward trend
in the VAT Gap in many member states
since 2008 as a result of the economic
crisis. This was especially the case in
Spain, Greece, Latvia, Ireland, Portugal
and Slovakia. On average, the VAT Gap
across the EU increased by 5 percentage
points once the economic crisis hit.
Commenting on the figures, Algirdas
Semeta, Commissioner for Taxation, said:
“The amount of VAT that is slipping
through the net is unacceptable;
particularly given the impact such sums
could have in bolstering public finances.
However, there is also a positive message
to be drawn from today’s findings. Our
ambitious reform of the VAT system,
the EU measures to combat tax evasion
and our recommendations for national
tax reforms, are all targeted in the
right direction. We know the problem;
we have identified solutions to it, and
now it’s time for member states to act.
Today’s figures will serve as a baseline
to assess their progress in improving
VAT compliance in the years ahead.”
Critically, the study also assesses
the Policy Gap, looking at the
difference between the yields member
states could achieve if they applied
uniform taxation to all consumption,
compared with the revenues actually
received due to the various tax
expenditures in their systems.
The study shows considerable dispersion
in the Policy Gap across member
states, ranging from the lowest in
Romania (14 percent) to the highest
for Spain and Poland (48 percent).
The Commission underscored that the
Policy Gap is a significant figure to
take into account when considering
how member states could use their
VAT systems to better effect for fiscal
consolidation. In fact, the average Policy
Gap (36 percent) is approximately twice
as high as the average VAT Gap (17
percent) across the EU. The Commission
pointed out that this shows that the
most important loss of VAT revenue
is not due, in fact, to non-compliance
but due to policy choices which
have resulted in multiple rates and
exemptions in national tax systems.
“This confirms the Commission’s
consistent position that member states
should broaden their tax bases and
minimize exemptions and reductions
in order to improve the efficiency of
their tax systems. This would not only
result in substantial new revenue,
but i ??[[ ???X]H ?[\\? ^??\?[\????\?[?\??\? ? ???][? \?X?H?X?[]][???X]\????\X[??K8?'H H??[Z\??[? ?ZY ????'?^x?&\? ?\?[ ?? ?Y??\? ? ]???\X?]Y ^ ?\?[\? ?]][ \B??]\??[??? ?X?]H ???X??\X[??K??\?Y??K H??[Z\??[??&\? ?\X]Y??[ ?Y[X?\? ?]\? ????Y[???][?[ ^?\?\?[? ?[Z] ^?^[\ [??[? ?Y X?[?? ??[??H?]?[? \?X?[\?] [?[????? B???[ \?[ ?[\Y?H ^ ?\?[\???]]X^H[?X?HY[X?\? ?]\? ?]??Y ?[?\??U ?]HZ?\??'B?\??\??[?? ?X?[?YX\?\?\? Z?[??? X??H??]Y [?? Y[?? H]ZX???XX?[?YX?[?\?K[?[ ??] ????[?? ?]?Y]?? HUH?U ?Y?[YK B???[Z\??[?Y?Y? Y H[\?[??B?? H????Z[????\??[ ?^??[K??X? ?[??[?? ??]\?Y?]?[ ^?^ \? ????HX???? HUH???[X?\??? ? L? ????\? ?X?Y?X?[ H????U?[??HXYH[?HY??X?Y[? ???